Should OPEC Interfere to Stabilize the Crude Oil Market?

Crude Oil’s Total Cost of Production Impacts Major Oil Producers

By Gordon Kristopher
|
Jan 13, 2016 10:02 am EDT

Crude oil’s total cost of production

The following chart shows the total cost of producing one barrel of crude oil. The total cost of producing crude oil includes all of the costs from project site plan development to lifting oil from the well. Producing oil costs the most in the United Kingdom. It needs $52 per barrel to meet the total cost of producing one barrel of crude oil. The US needs $36 per barrel to meet the total cost of producing one barrel of crude oil. The high total production cost for crude oil raises questions about US shale operators’ sustainability. To learn more, read US Oil and Gas Companies’ Debt Exceeds $200 Billion.

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OPEC members with highest total cost of producing crude oil

OPEC(Organization of the Petroleum Exporting Countries) members Nigeria, Libya, and Venezuela have the highest total cost of producing crude oil. The total production cost is at $31.6 per barrel, $23.80 per barrel, and $23.50 per barrel, respectively. However, Saudi Arabia and Kuwait have the lowest total production cost at $10 per barrel and $8.50 per barrel, respectively. In the next part of this series, we’ll discuss the total production cost breakdown and its influence on the oil market.

OPEC’s strategy

OPEC and Saudi Arabia adopted the policy of record crude oil production to shut down US shale operators’ business of higher break-even costs and production costs like Whiting Petroleum (WLL), Apache (APA), EOG Resources (EOG), Marathon Oil (MRO), and Continental Resources (CLR). The fall in production from the US will lead to the market share recapturing OPEC again. It led to a tussle between the high-cost operators among OPEC’s members.

Oil-tracking ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) are also influenced by lower oil prices. They also impact ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the iShares US Oil & Gas Exploration & Production ETF (IEO).